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Human Resources

Proposed Overtime Rule: 10 Common Questions

Hey Compliance Warriors!

Check out these FAQs by a prominent employment law attorney. She is answering 10 common questions about the new overtime proposed rule. Read on…


  1. What if an exempt employee should be reclassified as non-exempt? How do I reduce the risks of doing so?

    You can reduce your risk by reclassifying in connection with the date set by DOL for compliance with the increased minimum salary level.  Participating in DOL’s PAID program is also an option for reducing liability, as the employer will pay two years of back wages, but not the third year of back wages or the double liquidated damages.  You can never eliminate all risk of liability, but your company will carry that liability continuously until you correct the misclassification.  Even if you decide not to pay back wages, the potential liability disappears completely three years after the misclassification when the statute of limitations for willful violations expires.

  2. When do sales employees qualify for an FLSA overtime exemption?

    There are two FLSA exemptions for sales employees:  the “outside sales” exemption and the Section 7(i) “commissioned sales” exemption.  To qualify as outside sales exempt, the employee must: (1) have a primary duty of making sales, and (2) customarily and regularly work away from the employer’s place of business.  The “employer’s place of business” includes “any fixed site, whether home or office.”  Thus, this exemption covers only sales employees who make sales at the customer’s place of business.  Employees who make sales by telephone or Internet are not covered. The Section 7(i) exemption applies only to employees of retail or service establishments.  Employees of such companies are exempt if: (1) more than 50% of earnings are in commissions; and (2) the regular rate (weekly earnings divided by weekly hours) is at least 1.5 times the minimum wage.  The Section 7(i) exemption is not available in some states. Inside sales employees in non-retail businesses are not exempt.

  3. We addressed our salaried employees in NY to $58,500.  Do you foresee us needing to address them again based on this?

    No.  To be classified as exempt, employees must be paid the higher of the state and federal salary level.  Alaska, California and New York already require a minimum salary level well above the DOL’s proposed $35,309, and thus no further action should be needed in these states.  The minimum required salary for exemption in Colorado, Connecticut, Iowa, Maine and Oregon are higher than the current FLSA minimum ($23,660), but lower than the proposed $35,309.

    When DOL publishes its final rule, employers who operate in these states will need to ensure that their exempt employees are paid a salary equal to or greater than the salary required under for federal and state law, whichever is higher.

  4. Please re-present what the “duties test” is.

    Under the FLSA, there is a separate duties test for each different “white collar” exemption – executive, administrative, learned professional, creative professional, computer and outside sales.  The basic duties requirements for each exemption are available in DOL Wage and Hour Division Fact Sheet #17a.  The full FLSA regulations for the exemptions are at 29 CFR Part 541, available for free on-line here.  But, 28 states have exemption requirements that differ from the federal FLSA, and application of the exemptions is often difficult, even defying common sense.  That is why ComplianceHR created the Navigator OTapplication, which uses artificial intelligence to analyze and synthesize all federal and state statutes, regulations, agency guidance and case law, and then applies all to the salary and duties information you provide about the jobs.

  5. Do these policies apply to NFP/faith-based organizations?

    Yes, there is no exemption from the FLSA overtime requirements for public on non-profit employers.

  6. If the ruling were to go into effect retroactively, how would an employer pay back overtime for staff that do not clock in out for time keeping purposes?

    In any misclassification situation (DOL investigation, private litigation), determining the number of hours the employees worked to determine back wages is always a challenge, as you are not required to track time for exempts and most employers do not.  Nonetheless, the task is done by DOL and the courts every day. Start with assuming the employees worked the company’s standard work day when not out on vacation, holiday or other leave.  Employees will not be owed overtime for weeks when they do not work a full schedule.  Then, ask their managers about the hours worked:  Are there busy weeks when they know employees worked over 40?  Are there down weeks when employees likely worked short schedules?  You can also consider sending a survey or questionnaire to the employees themselves – telling employees that, because they may need to be reclassified under expected new regulation from DOL, you are gathering information about the hours they work in order to set an appropriate hourly wage in the event of reclassification.

  7. We are not a 40 hour per-week company.  Can we adjust the new minimum based on how many hours an employee works?

    To maintain the exemption, you will need to pay employees a salary at or above the new minimum salary level that DOL sets.  If you decide to reclassify to non-exempt, you can set an hourly rate at any level you choose that is at least the applicable federal or state minimum wage.  You can determine a new hourly wage by dividing the current salary by 40 hours or by a higher number based on the hours that the employees normally work (e.g., salary divided by 50 hours).  You can also set an hourly rate which will result in the same total compensation.  For example, if you expect reclassified employees currently earning a salary of $30,000 to work 50 hours a week, the lowest cost option would be the higher of the applicable minimum wage or $10.48 per hour, calculated as follows:

      • $30,000/52 = $576.92 per week

     

      • $576.92 / (40 hours + (10 overtime hours x 1.5)) =

     

      • $576.92 / 55 hours = $10.48

     

  8. At my organization, the FLSA exemption is connected to the job title not an employee.  Would we just enter the job title instead of the employee name when completing the questionnaire?

    Yes, you can analyze the position by employee or by job title.   Analyzing by employee is a best practice, as I often find during audits that employees under the same job title may be performing different job duties – some exempt, some non-exempt.  Dozens or hundreds of employees all under a “project manager” job title is a good example, as I have found in audits that some are really managing a project and others well, not so much.

  9. What is the potential for indexing and does DOL have the authority for indexing?

    DOL’s proposed regulations have abandoned the automatic salary increases in the 2016 final rule.  Instead, DOL has stated that they will review the minimum salary level every four years, using the 2004 methodology, and if DOL determines that an increase is necessary, publish a Notice of Proposed Rulemaking allowing public comments on the proposed increase.  I do not expect this to change in the final rule.

  10. How do you feel about non-exempt employees managing other employees?

    In my opinion, having non-exempt employees manage other non-exempt employees is not the best situation but sometimes necessary and inevitable. There certainly is no legal prohibition.  Under CA law, for example, few retail assistant managers qualify for exemption, and thus most are classified as non-exempt and supervise other non-exempts.

 

Until Next Time, Be Audit-Secure!

About LISA SMITH

Lisa Smith is CEO of Andere Corporation and Chief Content Developer at HelpDeskSuites.com. Follow her on Twitter, connect with her on LinkedIn, listen to her Small Business Spoonfuls Podcast, and find more in her Compliance Warriors Facebook Group.

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